Controlled & Affiliated Service Groups:
Issues and Implications for Employee Benefit Plans
Presented By Matt Stiles & Matthew Cannova Maynard Cooper & Gale, P.C. March 1, 2016
Agenda
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Benefits - Where We Are
▼
Treatment as One “Employer” – Why It Matters
▼
Controlled Group Rules
▼
Affiliated Service Group Rules
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Implications for Employee Benefit Plans
Benefits – Where We Are
▼ Race for the White House
▼ ACA Implications?
▼ Partial/Total Repeal?
▼ HIPAA – OCR Issues $240,000 civil money penalty against covered entity
▼ Failure to develop and implement policies and
procedures to protect PHI removed from its offices
▼ Failure to reasonably safeguard individuals’ PHI, and
▼ Allowed unauthorized individual to access PHI
Treatment as One “Employer” – Why It Matters
▼ Separate employers that constitute a controlled group or affiliated service group are treated as one employer for various benefits and tax purposes
▼ Frequently missed or misunderstood
▼ Familial and Organizational Ownership Attribution Rules
▼ Implications include
▼ Qualified retirement plan implications
▼ Health and welfare benefit considerations
Types of Controlled Groups
▼ Parent-Subsidiary Groups▼ One or more chains connected by ownership with common parent and parent owns at least 80% of one other
organization
▼ Brother-Sister Groups
▼ The same five or fewer individuals own at least an 80% controlling interest in two or more companies and have effective control of the companies
▼ Combined Parent-Subsidiary and Brother-Sister Groups.
▼ Three or more organizations are each a member of either a parent-subsidiary or a brother-sister group, and
▼ One entity is the common parent of a parent-subsidiary group and is also a member of a brother-sister group
Types of Affiliated Service Groups
▼ A-Organizations
▼ First Service Organization (FSO) + a service organization (the A-Org) that is a shareholder or partner in the FSO and that either:
▼ regularly performs services for the FSO, or
▼ is regularly associated with the FSO in performing services for
third parties
▼ B-Organizations
▼ First Service Organization + another organization (the B-Org) and the following tests are satisfied:
▼ Working Relationship Test - A significant portion of the business of
the B-Org is the performance of services (of a type historically performed by employees in the service field of the FSO) for the FSO
▼ Ownership Test - 10% or more of the interests in the B-Org are held
Types of Affiliated Service Groups
▼ First Service Organization - Defined
▼ The performance of services is the principal business of the organization (i.e., capital is not a material income-producing factor for the organization)
▼ Per se service fields: Health, Actuarial Science, Law,
Performing Arts, Engineering, Consulting, Architecture, Insurance, and Accounting
▼ Management Organizations
▼ An organization for which the principal business is performing management functions on a regular and continuing basis for a recipient organization (and related organizations)
Retirement Plan Implications
▼ The controlled and affiliated service group rules affect many requirements for qualified retirement plans
▼ The rules often require plans to consider
▼ All plans maintained by employers in a combined group
▼ All employees of and compensation paid by employers in a combined group
▼ A participant’s services performed for all employers in a combined group
Retirement Plan Implications
▼ Nondiscrimination Testing
▼ Compensation Limits under Code § 401(a)(17) ($265,000 for 2016)
▼ Eligibility and Vesting – Important with employee transfers, including transfer to employer with
separate plans or no plans
▼ Minimum Participation for Qualified Defined Benefit Plans
▼ Code § 415 Compensation Definition and Maximum Contribution/Benefit limits
Retirement Plan Implications
▼ Required Minimum Contributions to Pension Plans and Related Taxes
▼ All liability for both funding and excise tax obligations may be assessed against any member of the combined group
▼ Simplified Employee Pension Plans (SEPs) and Savings Incentive Match Plans (SIMPLEs)
▼ All members of a combined group are treated as one employer for purposes of eligibility and required
contributions
Health & Welfare Plan Implications
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COBRA
▼
Which employers are covered and whether an
employer is eligible for the small employer
exemption from COBRA liability
▼
Determining COBRA obligations in mergers and
acquisitions
▼
Small or Large Group Market
▼
Employees of all employers in the same controlled
group or affiliated service group are considered in
determining whether the small group rules apply
Health & Welfare Plan Implications
▼
Nondiscrimination for Self-Funded Group
Health Plans
▼
Remember: Nondiscrimination rules for
fully-insured plans still pending
▼
Cafeteria Plans
▼
Determining which employees may participate in
an employer's cafeteria plan
▼
Cafeteria plan nondiscrimination rules
ACA Implications – Employer Mandate
▼
Employers in a controlled group or
affiliated service group are treated as one
“ALE Group”
▼
Each separate employer is an “ALE
Member” – generally based on FEIN
▼
ALE Status
▼
Hours of Service
ACA Implications – ACA Reporting
▼
1094-C - Must indicate if you were a member of an
Aggregated ALE Group during any month of the
calendar year (even if only part of one or more
calendar months)
▼
Reporting ALE Group on the 1094-C:
▼ Indicate “yes” in Line 21
▼ Check the box in Column (d) of Part III for the applicable month(s)
▼ List the other members in Part IV
Reporting Your “Aggregated ALE Group” on the
1094-C
1
3
MEWA Implications
▼ Misunderstanding of controlled group status often causes unintentional creation of MEWA
▼ Common Scenarios
▼ Plans maintained by one employer or a group of employers under common control
▼ Plans maintained by groups or associations of unrelated employers
▼ Plans maintained by employee leasing organizations
▼ M-1 obligations
▼ ERISA exemptions to state insurance laws may not apply
▼ Self-Funded vs. Fully-Insured MEWAs
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